Partners, Volume 13, Number 3, 2003

Wall Street Without Walls Opens the Door to Capital Markets

In the face of cutbacks in federal, state and local funding, foundation portfolio shrinkage and generally tough times economically, demand for services from community-based organizations is increasing.

Facing challenging conditions in the disadvantaged urban and rural areas they serve, community development leaders have fewer available resources than ever to maintain essential services, build affordable housing, lend money to small businesses and revitalize impoverished areas.

Community development corporations (CDCs) and community development financial institutions (CDFIs) are all looking for innovative ways to finance their projects and programs, and the Wall Street Without Walls (W3) program is designed to help them.

At first glance, it might seem unlikely that Wall Street investment bankers would be a potential funding source for community development projects. But increasingly, nonprofits across the country are recognizing that their assets and projects can attract traditional, structured finance mechanisms. The challenge is how to overcome barriers to capital markets that impede capital flows to needy communities.

Identifying barriers to capital markets

Most CDCs and CDFIs capitalize their activities through traditional sources of public, private and philanthropic investments and contributions. “Unblocking Obstacles to Capital Markets for Community Development Lenders,” a paper by Gregory Stanton, director of the Capital Markets Access Program and the Wall Street Without Walls Initiative, offers insight. He says the major hurdle facing community development practitioners nationwide is that grant and concessionary-rate capital from philanthropy and government sources is declining and likely to decline more, while the need for community and economic development (CED) projects, such as affordable housing, is increasing.

Finding a solution to this “capital gap” will require the collaborative efforts of practitioners, philanthropists, social investors and capital market financiers to create debt instruments that can attract institutional investors into the CED marketplace. Facilitating discussions about how to bridge the “capital gap” is part of the work being done by W3.

Connecting Wall Street with CBDOs

The objective of W3 is to connect traditional institutions with community-based development organizations (CBDOs) in both and urban and rural low- and moderate-wealth communities, thus giving them access to the financial products of the capital markets. The program links finance professionals with local economic development organizations to offer expertise in addressing the concerns of disadvantaged small businesses, individuals and families.

By encouraging and facilitating volunteer investment banking, and ultimately capital markets services, Wall Street Without Walls aims to improve economic conditions in low-wealth communities by aiding the nonprofits that serve them. This crucial technical assistance harnesses Wall Street expertise in real estate finance as well as structured, public and nonprofit bond finance in order to make markets accessible.

Stanton, a former Wall Street banker, provided initial leadership during the pilot phase of the W3 initiative, focused primarily in the New York City region. Over the past two years, W3 has successfully provided financial technical assistance (FTA) to medium and large nonprofits seeking advice about efficiently financing their assets and operations from the capital markets on projects totaling over $150 million.

Small business loan funds and the development of housing, commercial sites, mixed-use projects and factory/industrial sites are among the projects receiving FTA. In each case, community-based organizations were matched with teams of volunteer bankers and finance professionals who helped on a pro bono basis.

For deals over $3 million, nonprofit organizations seeking financial technical assistance are often referred through national trade associations and intermediaries serving the community development field, such as the National Congress for Community Economic Development, the Local Initiatives Support Corporation, the Enterprise Foundation, National Community Capital, and the Neighborhood Reinvestment Corporation. The Securities Industry Association (SIA) works with the Wall Street Without Walls program to manage, track and assist the volunteer process to ensure that it is productive for both volunteers and the nonprofits they serve.

Capital markets workshop at FRBA

On October 8, the Federal Reserve Bank of Atlanta hosted an Orientation to the Capital Markets session for community-based economic development organizations throughout the Sixth District. Presented by Wall Street Without Walls, the program is being funded nationally by the Fannie Mae Foundation. The Atlanta session followed similar sessions hosted by Federal Reserve offices in Boston, Richmond and Baltimore.

These one-day orientation programs incorporate presentations from nonprofit practitioners and finance professionals along with actual case studies of projects involving structured finance completed by CDCs and CDFIs. Sessions are free and provide an introduction to other pro bono services offered by Wall Street Without Walls, including an extensive training institute and individual project technical assistance.

Wall Street Without Walls seeks other partners and sponsors to expand the program to different regions of the country. In addition, professionals willing to participate as pro bono FTA providers are welcome. For further information, visit our website at www.wallstreetwithoutwalls.com.

John Nelson, former Corporate Partnership Director at NCCED, and Greg Stanton, Director of the Capital Markets Access Program, are program co-directors. They can be reached in their offices in Washington, D.C., 703-648-9544 / jnelsonres@aol.com, or New York, 212-977-2759 / gmscapitalaccess@aol.com.